Bristol-Myers Squibb will buy biotechnology company Amylin Pharmaceuticals for about $5.3bn in cash, helping to extend its portfolio of diabetes drugs, it was announced on Friday night.

Immediately after the buy-out is completed, AstraZeneca will pay about $3.4bn in cash towards the deal, which will effectively create a joint-venture in the diabetes market, analysts said.

The tie-up expands on an existing partnership between the two pharmaceutical companies in diabetes treatments, including Onglyza, and is designed at strengthening their position in a growing, multi-billion pound market.

The deal is valued at about $7bn, which includes Amylin's debt and a payment to research and development company Eli Lilly of about $1.7bn.

Bristol-Myers will pay $31 a share cash, or a 10pc premium to Amylin’s closing price on Friday, according to a statement from the companies.

Amylin began seeking suitors after rejecting a $22-a-share offer from New York-based Bristol-Myers in February, people familiar with the matter said earlier this year.

AstraZeneca, Sanofi, and Merck also made offers during a bidding process, people with knowledge of the process had said.

Pharmaceutical companies lost patent protection to products worth $34bn in annual sales last year, and revenue at risk from generics will rise to $147bn by 2015, according to data compiled by Bloomberg.

Bristol-Myers has been seeking new products to replace revenue from its top seller, the blood thinner Plavix, which began facing generic competition in May after generating $7.1bn in sales last year.

“It doesn’t make sense to me that someone’s going to pay this ginormous premium for Amylin,” Michael King, an analyst at Rodman & Renshaw in New York, said on Friday.

“The desperation of big pharma is the best thing Amylin has going for itself.”

Navid Malik, analyst at Cenkos Securities, told the Telegraph: "AstraZeneca is effectively doing a joint acquisition. This is effectively a joint venture with share revenues split down the middle.

"The Bristol-Myers deal has to close [first] but as soon as it closes the Astra structure will be put in place. Astra has put its cards on the table."

The boards of Bristol-Myers and Amylin endorsed the deal and Amylin’s board recommended shareholders tender their stock, yesterday’s statement said.

Bank of America Merrill Lynch advised AstraZeneca.

Amylin closed 0.6pc higher at $28.20 in New York.

Amylin had been seeking a partner to help market Bydureon, its once-weekly version of Byetta, outside the US. The company ended in November a decade-long deal with Indianapolis-based Eli Lilly, which is developing a product with Boehringer Ingelheim GmbH that may compete with Amylin’s drugs.

AstraZeneca, whose chief executive David Brennan retired on June 1, was thought to make most sense as a potential acquirer of Amylin, according to Rodman & Renshaw analyst Mr King.

“Brennan lost his job because of his inability to refresh the pipeline from all the generic competitors," he said.